The Canadian fighter saga gets even stranger


Pity Boeing‘s (NYSE: BA) shareholders. Looks like they bought some stock in the gang that couldn’t shoot straight.

As a founding member of the international coalition of nine nations who helped Lockheed Martin (NYSE: LMT) design its F-35 stealth fighter, it was logically expected that Canada to buy this Lockheed Martin fighter to replace its aging fleet of 60 F / A-18A Canadian variant CF-18 fighters built by Boeing. At least that was the plan until last year. Then, pricing concerns led Canada to revisit Boeing and consider buying at least a handful of new F / A-18s instead while it mulled new plans for a larger acquisition.

Then came the trade war. Angry with the Canadian aircraft manufacturer Bomber (OTC: BDRBF) make inroads into the United States by sale of small commercial aircraft With up to 70% off the list price, Boeing has asked the U.S. International Trade Commission to impose import duties on the Canadian company. Canada did not like the idea at all and announced last week that in response it is cancel his purchase plan 18 new Boeing F / A-18s (a purchase that could have brought Boeing up to $ 1.4 billion in revenue).

And this is where things got really weird.

Canada has a plan to get F-18s on the cheap – and Boeing might not like it. Image source: Getty Images.

Buy Boeing, but not of Boeing

You see, Canada still loves the cheaper price of Boeing fighter jets – it just doesn’t want to give Boeing any money, now that Boeing is chasing Canada’s favorite aerospace stock. So instead of buying F / A-18s directly from Boeing, Canada’s Utilities and Procurement Agency made the following cryptic announcement on Tuesday:

Acquiring the aircraft the Canadian military needs … is a top priority for the Government of Canada. Government delivers on promise to have an open and transparent competition to permanently replace Canada’s fighter fleet [with] 88 advanced combat aircraft [at a later date. Meanwhile,] until permanent replacement aircraft are in place and fully operational … the Government of Canada will continue to purchase 18 additional jets from the Australian Government.

Notice how Canada didn’t say what kind “extra jets” that he will buy from Australia? Funny story. AP now announces Canada plans to buy Boeing F / A-18 – but not from Boeing, but from Australia instead.

Granted, these will be used planes, but for this reason, they will be much cheaper than the new F / A-18s that Boeing was offering to sell in Canada. The additional savings could even help Canada close its budget gap and, when the time comes to purchase its additional ’88 advanced fighter jets’, be able to afford fifth generation Lockheed Martin F-35s instead of Boeings. F / fourth generation. A-18.

(Speaking of which, in the same announcement in which it confirmed the purchase of an Australian F / A-18, Canada indicated that it planned to award this larger contract for “advanced” fighters in 2022, with delivery to begin in 2025.)

So, in a bold move, Canada backed off a more than $ 1 billion deal with Boeing and put the company at risk of losing yet another even bigger sale down the road.

What this means for Boeing … and for Lockheed Martin

Now, as bad as it all sounds, it’s not really a fatal blow for Boeing. As my colleague Fool Lou Whiteman pointed out earlier this week, “Even without the Canadian order, the outlook for the Super Hornet program is much healthier today than it was just 18 months ago. “. Between US Navy purchases and by other international buyers, Boeing now believes it has enough F-18s in its pipeline to keep its production lines buzzing with Super Hornets into the 2020s.

Still, Boeing had a much bigger target in its sights – a chance to snatch a founding member of Lockheed’s F-35 consortium and sell dozens and dozens of F / A-18 Super Hornets directly to Canada. Unless and until it resolves its trade dispute with Bombardier, this opportunity could be lost for good, and Lockheed will have a second chance to book up to $ 30 billion in additional F-35 sales for our company. neighbor to the north – and to increasingly lucrative profit margins too.

Good news for Lockheed Martin, but bad news for Boeing.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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